Monetarists and Inflation
Keynesian policy worked off the premise that supply and demand do not operate in synchronisation and that aggregate demand may need to be leveraged with deficit spending with the additional premise that there was an inverse relationship between inflation and unemployment purportedly elucidated with the Phillips curve. However, the monetarists argued that low unemployment created leverage by the unions who could secure wage increases in real terms without a concomitant increase in productivity and hence inflation could accelerate with a tight labour market. Additionally, exogenous shocks like a global oil shock meaning the curtailment of exports could transpire and this would necessitate the need to prevent real term rises because supply could not absorb wage increases domestically and this would consequently require lower unemployment in order to reduce leverage which would enable prices to stay stable - this explains the manifestation of prices and incomes policy where wage growt...
